For many years, this humble blog has described how the US, contrary to our own popular mythology, does industrial policy by giving certain sectors tax breaks, cheap funding, government backstops, and/or direct government spending. Those industries include heath care, real estate, higher education, banking, and arms making. In other words, like Moliere’s Bourgeois Gentilhomme, who was surprised and pleased to learn that he was speaking prose, the US has long engaged in industrial policy, but by default, to serve special and powerful rather than national interests.
But it appears that the success of China in orchestrating its economy has become so undeniable that folks inside the Beltway have gone from trying to counter the impact of Chinese intervention to copying from their playbook. We’ll turn soon to the Wall Street Journal story describing this change in heart.
It seems peculiar that it’s taken this long for the US to realize the error of its ways. After all, there was even more moaning about the rise of Japan in the 1980s, and its use of industrial policy was widely acknowledged as central to its success. But the 1980s were also peak Reagan/Thatcher, so pushing for more muscular government was totally at odds with the fads of the day.1
So it’s long been unseemly to acknowledge that government plays a huge role in the economy and consider that it might make sense to be deliberate about it. And it’s not as if we still aren’t to some degree: Mariana Mazzucato in her landmark book, The Entrepreneurial State, described how the government and major tech schools like MIT, Stanford, and CalTech, have flexible, freewheeling, and productive relations with government. But American greediness has also gotten in the way. For instance, Mazzucato described how the government sponsored the creation of the LCD industry and wanted the US to become an important manufactured. But Silicon Valley venture capitalists didn’t see making stuff as high return enough, so we ceded production to Asia.
We have separately regularly pointed out that it’s crazy for the US, which has the resources to enable it to operate as a near autarky, to have become so dependent upon foreigners for critical materials and components, starting with chips. Reading between the lines of this Wall Street Journal account, it is the chip shortage that’s led to a change in heart about picking industrial winners. From the Journal:
The U.S. and its allies have long pressed China to stop helping favored industries with subsidies, government preferences and other interventions.
Now they are beginning to copy it. Last month, the U.S. Senate voted for direct industry subsidies with little precedent: $52 billion for new semiconductor fabrication plants, called “fabs.”…
Chip-manufacturing subsidies are the most prominent of a range of interventions Western governments are rushing out to promote industries they deem strategic, from electric-car batteries to pharmaceuticals. Such interventions have increased sharply in both the U.S. and Europe in the past decade, according to Global Trade Alert, a trade-monitoring group.
Collectively, this represents an embrace of “industrial policy,” the idea that governments should direct resources to industries critical to the national interest rather than leaving things to the market.
Industrial policy was once commonplace among market-based democracies…They pulled back over recent decades….
China, though, never retreated. Even after it introduced market reforms in 1979 and accelerated them after 1992, the state continued to guide economic development through ownership of enterprises and control over credit, government purchases, tax preferences, land and foreign investment. Since 2006 the ruling Communist Party has put priority on catching up to the West technologically.
Previously called “Made in China 2025,” this endeavor was renamed “dual circulation” last year. In a speech, President Xi Jinping said the goal was to eliminate China’s dependence on other countries while increasing their dependence on China. It could then threaten to cut off foreign customers to deter aggression, he said.
Now, of course, one problem with the West emulating this approach is that in the Anglosphere, the caliber of the bureaucracies has plunged. Going into finance or tech is where the big bucks and glamour lie. There’s no counterweight of prestige to help government agencies with recruiting, outside the revolving door patronage appointments. And to compound this situation, most officials have internalized the idea that governments should defer to commerce. For instance, C-SPAN is full of cringe-making displays of Congresscritters fawning over CEOs.
Another problem is that conducting industrial policy requires long-term priorities and funding of initiatives. But there’s no reason to think the Feds would be any better at “long-term” than our famously short-term private sector. It’s not hard to see a new Administration shelving a lot of pet projects of its predecessor, just to make a statement.
The Journal continues:
In U.S. there has long been broad support for government funding of basic research and development. One result is that the U.S. still leads in inventing and designing new technology, even though the manufacture of the resulting products moved abroad, mostly to East Asia…
Advocates of industrial policy in Congress and the White House are no longer satisfied simply promoting innovation; they want the resulting products to be made in the U.S. They have multiple goals: to secure U.S. supply, create jobs and ensure that the resulting intellectual property stays in the U.S. rather than being transferred to Chinese competitors via outsourcing.
Last month, the White House proposed a breadth of tools to boost domestic production in four sectors deemed vital to the supply chain: semiconductors, batteries, specialized minerals and pharmaceutical ingredients.
It proposed using several existing federal loan, tax-credit and R&D programs to support electric-vehicle battery manufacturing. To reduce dependence on foreign supplies of neodymium magnets, important components of motors and other devices, it suggested imposing tariffs under the same 1962 national-security law that former President Donald Trump used to impose tariffs on imported steel and aluminum.
The administration also announced plans for a public-private consortium to revive domestic production of 50 to 100 critical drugs, as well as plans for a domestic lithium-battery supply chain.
So the US is getting religion, albeit late in the game. For instance, pharmaceutical inputs are a big area of vulnerability. From a 2018 post:
A recent book, China RX: Exposing the Risks of America’s Dependence on China for Medicine by Rosemary Gibson and Janardan Prasad Singh, appears not to have gotten the attention it warrants..
The big message of Gibon’s and Singh’s book is that the US relies on China for the production of active ingredients in drugs and in many cases, of the medications themselves, to the degree that we would have a public health crisis if supplies were interrupted. As Gibson said on C-SPAN:
Many people that we spoke to, both former government officials and some in industry said that if China shut the door on exports, within months, pharmacy shelves in the United States to be empty, and hospitals would cease to function.
And don’t assume generics king India would step into the breach. India gets many of the active ingredients for its pharmaceuticals from China. Gibson forecasts that China will overtake India in generics manufacture within a decade.
As Gibson explains, the US no longer makes its own penicillin, in part because China dumped penicillin in 2004, driving the last US plant out of business.
The medications where the US relies on China include heparin, a blood thinner that among other things is used for IV drips. No heparin, no IV treatments. Due to the difficulty in tracing the source of drug company ingredients, the authors could make only case by case investigations, but they China production to be critical for treatments for Alzheimer’s HIV, depression, schizophrenia, cancer, epilepsy, and high blood pressure.
But the “provide subsidies and they will come” approach is naive. First, the record of tax credits and other gimmies is that they overwhelmingly activities that would have happened anyhow. Second, the officialdom seems to miss that building stuff doesn’t happen in a vacuum. It often requires skilled lower level workers, supervisors, and factory managers. Even with a push to train more high school students to become future tech manufacturing workers….where do we get the critical cadre of operation managers?
Another issue is cost. In an ideal world, the plants would be in decent proximity to customers so they could collaborate closely. Remember “clusters”? The price of real estate in Silicon Valley is an impediment, and I assume it’s not much better near MIT or Austin or Seattle.
So while industrial policy is long overdue, it’s been so long since the US has been any good at it that I’m not sure anyone inside the Beltway has a good idea about how to put one foot in front of the other.
____
1 The reason for Japan’s bubble and bust had just about nothing to do with its industrial policy. Banks were supposed to be only minimally profitable and support industry. The returns on assets of Japan’s banks were accordingly stunningly low compared to big banks in the rest of the world. But the US (remember Japan was and still largely is a military protectorate of the US) forced rapid deregulation upon Japanese banks, which focused on retail and simple corporate lending. It was like telling a drayage company that it was really in the transportation business and giving it a 747 to fly.
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Friedrich List and the American School were right all along, but the ownership class has been selling out its fellow citizens in labor for at least 60 years now.
A course correction is long overdue.
what happened of course was predicted and with ample warnings.
http://www.epi.org/publication/issuebriefs_ib137/
The High Cost of the China-WTO DealAdministration’s own analysis suggests spiraling deficits, job losses
Report By Robert E. Scott February 1, 2000
Issue Brief #137
The High Cost of the China-WTO Deal
Administration’s own analysis suggests spiraling deficits, job losses
by Robert E. Scott
“bill clinton sent all of this off to the chinese communist party,
America produced every important invention in the digital age, from integrated circuits to semiconductor lasers, solar cells, flat panel displays, sensors and light-emitting diodes. Except for integrate circuits, Asia now produces virtually all the world’s output of these building-blocks of the electronics industry, and China has a crash program underway to become the world’s major producer of semiconductors.”
“Few countries have become rich through free-trade, free-market policies, and few ever will. Ha-Joon Chang
Read more at: https://www.brainyquote.com/quotes/hajoon_chang_694447‘
a insider tells the truth,
https://www.twincities.com/2018/08/02/beth-baltzan-europeans-are-free-traders-now-thats-rich/
Democrats have long known that trade theory and trade reality are two different things, and that our trading system needs reform.
Trump’s presidency is at least in part the product of exasperated workers who’ve been left behind by globalization. If that fundamental unfairness isn’t addressed, he won’t be the last president elected on a platform of blowing up the system.”
Blame Adam Smith’s Invisible Hand – no role in its ideology for sociopathology!
As you rightly point out, the US sucks at industrial policy in the few cases it has tried it. That said, in the past when a national emergency called for it, we were able to mobilize private industry. World War II was won by American industrial and logistical prowess, and companies like GM, Ford, GE or AT&T were integral to the war effort, including the Manhattan Project, by contributing management talent. We even built the operations research for this, e.g. George Dantzig’s Simplex algorithm for linear programming, when the theory was pioneered by the Soviets (due to their belief in central planning) but the practice was developed at places like RAND Corporation. One good example of how this could be done is the US Digital Service, run until recently by Matt Cutts, the man formerly responsible for search engine result quality at Google.
https://www.wired.com/story/obamas-us-digital-service-survives-trumpquietly/
Now China selects engineers, not lawyers for its top echelons (at one time the Politburo was composed entirely of engineers, not sure if this is still the case since Xi started filling it with his yes-men). Party officials’ advancement is managed by objectives, including GDP growth in their province, now also tempered by environmental scores. It’s essentially managed like Google, and essentially a modernized form of China’s traditional mandarin system, just with engineering or economics instead of the Confucian Classics as the curriculum.
Just to get an idea of what the US government can achieve when it actually sets its mind to it, see this fascinating article on how the lengths it went to in order to secure the supply of nasal test swabs for Covid:
https://www.bloomberg.com/news/features/2021-03-18/covid-test-swab-company-puritan-faces-family-feud
The US military may be utterly inept at the big picture of how to prosecute unwinnable wars like Afghanistan, but its logistics are still unmatched.
Hmmm…the word socialism, ie, the all not the few, covers a lot of ground. Read the essays and interviews at Michael Hudson’s website: clarity can be bracing.
Actually, USA excels at industrial policy — when it tries it. In fact, it’s how USA was built. The entire electronics and computer industry exists today because the Office of Naval Research and the Army Ordnance Department deliberately decided to share the technology developed in government and government-funded labs during World War Two. The creation of an entire new industry can be traced to a single event – the Moore School lectures at University of Pennsylvania in August 1945.
There is a long tradition of the military being the driver for creating new technologies and industries. Metal cutting and forming machine tools developed at the national armories were deliberately seeded into civilian companies in the 1830s to 1850s. The Navy introduced systematized scientific knowledge of designing and building steam engines in the 1850s and 1860s, basically creating the profession of mechanical engineering. Radio Corporation of America was founded in 1919 at the instigation of the Navy as a silent partner. The Navy played the exact same role in the creation of Cray Research in the 1970s. In the 1950s through 1970s, the three major developments in aerodynamics — the area rule, supercritical wings, and winglets — were developed by NASA scientist Richard Whitcomb at Langley Research Center. In the 1950s, the frozen food industry was saved and put on a solid foundation by the efforts of USDA research labs. This is just a handful of examples from the hundreds, even thousands of examples of successful USA government industrial policies.
Every single technology in cell phones began as a USA government research program, as detailed by Mariana Mazzucato in her 2013 book The Entrepreneurial State: Debunking Public vs. Private Sector Myths.
But this history does not conform to the free market / free enterprise mythology favored by financiers and rentiers, so it really is not taught.
The people wanting this history to be taught will have to figure out how to create the modern day version of the Vietnam War era Teach-Ins. Rolling Teach-Ins, hundreds and then thousands of them, revealing all this history to interested people in all different kinds of settings.
one of the fundamental ” industrial policy” choices, along with giving land to the railroads to hasten manifest destiny… was choosing to “give” our money supply “to the bankers” with the adoption of the federal reserve act.
The way we have enshrined the current monetary system, which at its core allows banks to create money when they make loans, is the “invisible hand” that has been the de-facto king-maker for over a century.
All of these banking giants over the last century, weren’t lending out their money. they were lending out money which is only backed by a fraction of their money, yet their decisions as to who gets to “be a big player”… has decided how this country evolved, so far. a couple of “legs up” to the winners in all the big industrial ,real estate, and financial syndicates and their minions…
Allowing these bankers to lend more money than they have, has just fueled this haphazard growth that is really the problem.
And today, with the climate situation, we need to stop allowing bankers and their doomed model to continue to reign supreme. By creating money as debt, the cycle of a need for growth is baked in. there is always a need to “grow” when money is created as debt; whereas the principle is created through each loan, but the interest is not. That means the wheel of creation can never stop. It justifies a worldview which is implicit in the current monetary system, that all things must grow, the new debts to pay off the old…. by hook or by crook…. environmental limitations be dammed.
Now were we to adopt a plan like the new chicago plan/NEED act… and money was created as an asset, not a debt… and instead of bankers being deemed essential to maintaining the money supply, they would just be investing their own money, and not creating ours… The paradigm would shift.
Then we would be able to realistically look at what it would take for a “government of the people”, to use the power of money creation, to actually provide a benefit to people which wouldn’t need to be at the expense of the planet, and every other living thing…including the vast number of poor people who bankers never decide are worthy of “them” creating money for.
Most things of inherent value, shouldn’t be monetized. But our banking system now requires it.
Thanks for pointing out Dennis Kucinich’s NEED Act. I wasn’t aware of it but had independently concluded something similar in the form of a second currency. Investments with it would be confined to the US and certain other restrictions would apply as well. But it would be divorced from our hopeless Congress and created by an independent organization. The currency would launch only when enough people, companies and institutions to guarantee at least a minimal autarky had signed on.
Of course, that “independent organization” is absolutely crucial and sadly undefined. But hey, when I retire I’ll have time to think this through. In any event, I definitely like the idea of starting with the currency. It’s the indispensable foundation upon which any vast and otherwise almost infinitely complex economic transformation must be built.
As far as I can tell free trade never existed in large countries.
The British empire 1815-1914 claimed free trade but what that meant was they wanted free trade for their exports but kept the empire closed to outsiders; try to sell American farm equiptment to India in 1910 and see what happens. When the U.S. forced an end to that using Lend Lease as a pry-bar in 1942-44 the whole reason for supporting the empire vanished- and so did the empire.
In the U.S. pre-1860, the south wanted free trade because they exported raw materials to England and wanted tariff-free goodies in return. The northern U.S. manufacturers wanted protection and got it. The western farmers originally sent grain down-river to New Orleans but that raised shipping costs so the U.S. could not compete in Europe with Russian grain from the Baltic. Railroads changed that and we saw the rapid rise of Buffalo NY as a milling center; the new, cheap route to Europe rerouted western U.S. agricultural trade through the north, isolating the south politically. As one wag said: “If the civil war had been fought using the pre-steam engine technology that the British were stuck with in 1775, the north would have lost and if the Brits had had the steam engine we would be singing God Save the Queen”.
The full story of the U.S. military’s 1924-1938 planning for industrial mobilization has never been told, but the records exist. In 1940 we had an industrial base of 11,000 plants and almost complete control of the natural resources needed to fight a World War. That is no longer true and the new industrial policy is driven by that realization.
On the other hand China is almost totally dependent on overseas trade for raw materials coming in (coal from Australia and Iron ore from Australia and Brazil) and manufactured goods going out in all those 40-foot containers. That system will stop if trade is interupted by a navel conflict or the rest of the industrial world says “No pollution control on those power plants and steel mills? Then no exports of steel to us.” China already puts out twice as much CO-2 as does the U.S. and 4 times as much as Europe. The contradiction between the need to develop the third world and the limits of the earth’s atmosphere are becoming more apparent… and so far there is no solution in sight.
Good points. But it should be noted that if the US and Europe had not shipped much of their manufacturing to China, the CO2 balance would be different, with China emitting less and the US and Europe more.
But it should be counter-noted that thingmaking had become more energy efficient in EuroAmerica than the thingmaking being ramped up in China. So leaving the thingmaking in EuroAmerica would have meant less carbon emissions per the same number of thingmade things.
And even worse than that, all the carbon emitted to make EuroAmerica’s thingmaking industrial ecosystem, especially America’s thingmaking ecosystem in particular, was all thrown away, wasted and for nothing when thingmaking was shut down in America and opened up in China. Then too also in addition, a whole more other bunchload of carbon was emitted just to build the industrial ecosystem in China to replace the one that was thrown away in America.
So shipping the industrial sector to China meant causing MORE carbon emissions over and over and over than leaving the industrial sector in America would have caused.
The answer is a several decades project to rebuild a smaller kinder gentler industrial sector in America for Americans to keep eachother paid and working making things for eachother to buy and to use. And a hard ban on economic contact of any kind between America and China, in either direction.
Let China nationalize every American investment in China. Every American who invested in China is/was an economic traitor who deserves to lose every bit of herm’s investment. And let America nationalize every Chinese investment in America. Lets put a stop to racist Chinese colonialism in America. Lets stop the coming century of Chinese Humiliation of America before it starts.
And maybe we will need to round up and shoot all the hundreds of thousands of pro-China running dog lackey flunky stooges who would object to such a policy.
I imagine a beautiful future wherein we can proclaim The National Protectionist Republic of America.
” America has Stood Up!”
Are we sure that the root of the problem isn’t tax policy ?
U.S. industries have figured out (and are supported by Congress) that by shifting production offshore taxes can be significantly reduced if not avoided all together. e.g Apple, Ingersoll-Rand, and others.
So can and should the government support critical commodities ?
Of course it should.
And it should not reward offshoring with lower taxes either.
Expertise in the design and implementation of an industrial policy is not something that can be acquired overnight. The US government currently does not possess such an expertise for the following reasons. First, 30 years of neoliberalism have popularized the idea that government involvement in the economy is always bad and government planning has become a radical concept. Second, lack of funding has resulted in a loss of expertise in the development of an industrial policy, as previously prominent institutions have been gutted. Third, crucial knowledge in the implementation of an industrial policy that can only be gained through trial-and-error in the real world over time. The opportunity to learn through experience has been lost. Fourth, graduates of our best universities have chosen to enter the private sector, thereby depriving the government of much needed talent. Fifth, a successful industrial policy should be based on the interests of all stakeholders in a democracy. Given the capture of our government by elites (Wall Street, Silicon Valley, the MIC), it is doubtful that the resulting policy will serve the interests of non-elites. Sixth, short-term thinking has become a dominant feature of political and corporate life. Short-term thinking happens to be anathema to good industrial policy. Seventh, individualism has become a dominant ethos of American culture and self sacrifice for the welfare of fellow citizens has become less fashionable than in the past.
One can only hope that the economic stimulus package proposed by the current administration is part of a well thought out industrial policy. After all, having a good industrial policy is crucial to the success of MMT.
In the fifth reason, you mention the capture of our government elites. What you left out is “who captured them”? I think it’s pretty clear that the decision-makers starting in the seventies, through today, have decided that technical and industrial development will move to Asia, leaving the US with a post-industrial economy, similar to what happend to England in the 20th century.
As long as the people who control the money continue to build up Asia, and tear down the US, alll this analysis is just surface assessment.
Maybe we can look at specific people, but the point is more general. One book to consider is “Servitors of Empire” by Darrell Y. Hamamoto, but there are plenty more.
I really don’t see how this can be successfully carried out as much as I would like it seen being done. To carry out any new industrial policy, you would be using the exact same people who created this problem in the first place. And they can only see with a horizon of the current financial quarter – not something like a five year plan.
And would their heart be in it or would they engineer the solutions to be personally lucrative for them and not the success of a project? Look at the broken toys that the Pentagon pays premium prices for which are only good for selling spare parts to for a few decades. And you know that Wall Street would game it to the hilt with the help of their trained seals in Washington.
This is key. As Yves alluded to, the federal bureaucracy has been decimated over the last 40 years. As a retired federal employee (1987-2015) I witnessed the conversion of “government work” to private contractors on a massive scale. The US public has no idea how much of our government is now guided by private hands. NASA now exists to support billionaires, FAA is just a supporting role to Boeing, and the IRS has no expertise to catch or prosecute sophisticated tax fraud. The Pentagon is simply an organized violent crime network. The rise of China has certainly put some officials in a panic but the skill set to respond has long been lost.
Back in the 80s, with Thatcher and Reagan holding hands, and Congress looking at a budget that was solid red for decades to come (bc. MIC), the decision should not have been TINA and privatization bc. that just cast everything in stone. It made capitalism, profit, profiteering, monopoly and inequality inevitable. But we had a Calvinist mindset that money belonged to the king and everyone had to pay back their debts, and nobody got a freebie, everyone had to be self sufficient and enterprising and frugal. Well…. When we privatized an economy that had been created by subsidy, we thought it would create good discipline, not poverty. But it created poverty and poverty is not good discipline. It’s closer to mental illness. So we know all this now – even tho’ we’re far from admitting it. If we had chosen in the 80s to create SOEs, state owned enterprises, to support the basic social requirements for a good, decent civilization, we’d be much better off today. China’s SOEs have been the stabilizing factor in an otherwise very complex economy. In the EU they spend @ 45% of their revenue on social liabilities; here we spend less than 35% even though it is far more expensive to live here in every way, because monopolistic practices. A double vice. We do actually have industrial policy but it only benefits the rich. And “government” will not admit they caused this mess, this wonderful “free market” – everyone in Congress claims “I believe in the market!” It’s a total crock. The market is an untamed carnivore. We need industrial policy that creates a job with a living wage for every American. We need social benefits guaranteed as a human right. We actually need “government” – one that doesn’t abdicate its constitutional responsibilities to private for-profit parties. To create those new government policies is so obviously critical it would be laughable to see Nancy Pelosi stand up and say we can’t forgive student debt (that whole fucking debacle she and her ilk created for their own benefit to “alleviate” all the government obligations and set us free… free to starve to death) if it weren’t so sickening. If Nancy had 2 brain cells left she would step down. So should half of Congress. They aren’t representing anything worth having.
When you talk about industries getting government support, you mention, “Heath care, real estate, higher education, banking, and arms making.”
I believe that this list is incomplete.
Specifically, you ignore industries which are subsidized through IP (copyright and patent), such as software and entertainment. (Also pharma, which falls under the rubric of healthcare that you mentioned earlier)
Also, the role of things like the Investor State Dispute Settlement process serve as a similar subsidy to finance. (also mentioned earlier)
The push for broadening and strengthening IP protections and the like is a direct government subsidy to those industries, albeit one which does not have the government collecting taxes and distributing the proceeds.
What these industries all have in common though, is an outsized impact on the national polity due to aggressive and extensive programs of campaign donations, which lead to the legislation of subsidies benefiting them.
A cynic (like me) would argue that the US Government has always had a national industrial policy, and that it is for rent-seeking industries, while China makes the decisions largely on the basis of perceived long term benefit to their country.
I would argue that implementing a different and explicitly stated industrial policy is at least as much a fight against corruption in our polity as it is just the picking choosing the sectors which would champion the US economy.
Real Estate, Higher Education and Banking are not even industries. They are just businesses. ( Homebuilding is an industry, but the homes aren’t “real estate” until they get built. Then the “real estate” business takes over.)
Health care is at least a service business, hopefully serving to maintain and extend peoples’ health. Arms making is an industry in that arms are really things which take a real industry to really make them. Then all kinds of business is done in the already-made or to-be-made arms.
The reason I believe that the US never truly embraced industrial policy is that it would result in a significant increase in the living conditions of the working class. The rich would rather have a less powerful nation than give the working class anything.
It’s why the Chicago School of Economics, which has been a total failure remains the dominant economic school. It is an ideologically convinent lie.
Kalecki captured the problem well when he wrote about the social aspects of unemployment. Points 3 and 4 in his writing are important. Businesses hate subsidizing consumption and hate the idea of people who lose their fear of unemployment.
https://www.nakedcapitalism.com/2012/08/kalecki-on-the-political-obstacles-to-achieving-full-employment.html
The problem for the rich of course is that this is all falling apart from their greed. The rapid gains of China prove that State capitalism with a large industrial policy work far better than the neoliberal economics system that Michael Hudson calls junk economics.
China’s recovery from the Century of Humiliation was inevitable, but the process has been accelerated with free trade and outsourcing. The greed of the rich has accelerated the loss of American hegemony.
Maybe we should shorten the phrase ” junk economics” down to the word ” junkonomics”. Its short, catchy, punchy and might get people using it and thinking about what it means.
With NAFTA he connived in that constituency’s ruin. He assisted in the destruction of its economic power. He did his part to undermine his party’s greatest ally, to ensure that labor would be too weak to organize workers from that point forward. Clinton made the problems of working people materially worse.
To this day, for working people, the lesson of NAFTA glares like the headlight of an oncoming locomotive: These affluent Democrats do not give a damn about inequality except as an election-year slogan.
The stationery of an outfit that lobbied for the treaty was emblazoned with the argument: North American Free Trade Agreement—Exports. Better Jobs. Better Wages.”
As with so many of the achievements of the Clinton era, it eventually took a Democratic president, working with Republican members of Congress, to pass this landmark of neoliberalism.”
“The number of young black citizens who, in this manner, lost years of their lives to advance Bill Clinton’s journey to political manhood will probably never be known. Let a thousand Ricky Ray Rectors burn, but please God, get this man reelected.”
https://www.salon.com/2016/03/14/bill_clintons_odious_presidency_thomas_frank_on_the_real_history_of_the_90s/
what happened of course was predicted and with ample warnings.
http://www.epi.org/publication/issuebriefs_ib137/
The High Cost of the China-WTO DealAdministration’s own analysis suggests spiraling deficits, job losses
Report By Robert E. Scott February 1, 2000
Issue Brief #137
The High Cost of the China-WTO Deal
Administration’s own analysis suggests spiraling deficits, job losses
by Robert E. Scott
“bill clinton sent all of this off to the chinese communist party,
America produced every important invention in the digital age, from integrated circuits to semiconductor lasers, solar cells, flat panel displays, sensors and light-emitting diodes. Except for integrate circuits, Asia now produces virtually all the world’s output of these building-blocks of the electronics industry, and China has a crash program underway to become the world’s major producer of semiconductors.”
“Few countries have become rich through free-trade, free-market policies, and few ever will. Ha-Joon Chang
Read more at: https://www.brainyquote.com/quotes/hajoon_chang_694447‘
a insider tells the truth,
https://www.twincities.com/2018/08/02/beth-baltzan-europeans-are-free-traders-now-thats-rich/
Democrats have long known that trade theory and trade reality are two different things, and that our trading system needs reform.
Trump’s presidency is at least in part the product of exasperated workers who’ve been left behind by globalization. If that fundamental unfairness isn’t addressed, he won’t be the last president elected on a platform of blowing up the system.”
You really need an ideological base to support an industrial policy that isn’t pure theft. Our current ideological base, fifty years in the making, is profit above everything including human life and is thus purely extractive; the self eating snake reduced to it’s essence. Producing anything other than Immiseration would take a generation of mental gear shifting. It won’t happen overnight if at all as time is not on our side.
“Economic ideology minus sociopathology would be nice!”
Hat tip to Mahatma Gandhi who was once purportedly asked what he thought of Western civilization. “I think it would be a good idea.”
I might have the exact wording wrong, but you get the gist.
A friend was speaking to a Chinese national at Heathrow about the possibilities of a Sino-US war, The Chinese person sardonically observed, “So what if you declare war? Who’s going to make your spare parts?”
One important thing to note about the US trying to emulate Chinese industrial policy is that the Chinese government doesn’t just supplement industry but it also directly owns it. A large laundry list of Chinas greatest and most important industries are dominated by state-owned enterprises. One problem with subsidies is you open the gateway to corruption and graft where the state is picking winners and losers. While this might be desirable for economic strategic purposes it also runs the risk of being based upon nepotism, corruption, and lobbying. But by the state actually owning the industries themselves this helps ensure that they are being picked for the good of the people. While also cutting out the capitalist middlemen which by eliminating profit it opens up many more options that profit would otherwise interfere with. Cutting out capitalist profit can also give that industry a gigantic cost advantage which is I believe the primary reason that China has been able to do such an economic miracle.
“One problem with subsidies is you open the gateway to corruption and graft”
I wish you’d stop going on about the Republican Party!
I believe the MIC is equal opportunity, with both Republican and Democratic parties shoveling dollars into its maw.
With healthcare in the US costing 12000 per capita and about 400 per capita in China one can find a huge production cost advantage. Litigation costs in the US are mammoth in comparison to China. Our cities are filled with high rises with lawyers making 7 figures. These costs eventially affect production efficiency. College administrators, athletic coaches are national overhead. Agricultural subsidies, tax credits, patent litigation all negatively impact productivity. Rent seeking politicians negatively impact productivity. A government with no control of campaign contributions and their quid pro quo leads to very inefficient decisions that cost a lot of overhead like the F 35. The republic of our founding fathers is long gone. We need to rethink our government. So perhaps the only way to improve the situation is to have massive campaign finance reform……without it we are doomed. I am not optimistic.
I hope this means we will now reflect on corporate use of contract manufacturers, and how these entities have helped drive the industrial policies of other countries.
When U.S. manufacturers move their production overseas they usually don’t build a new factory in a low labor cost country, but rather they outsource the entire production to an independent contract manufacturer that will build a product on their behalf in a factory overseas. Contract manufacturers build factories with massive subsidies that they arrange from overseas countries, which is important because a factories contribution to the total manufacturing cost can greatly exceed the cost of labor, as well as arranging cheap local labor and low cost materials. An outsourcing manufacturer prefers to simply pay a fee for the production of each unit of product, because the contract manufacturer will bear the risks and the costs of plant, materials, and labor. And the contract manufacturer probably hires a construction company like Fluor to actually build these facilities.
These contract manufacturers create products overseas for many large U.S. companies. Foxconn manufactures devices for Apple (iPhones, iPods, iPads, and the Apple Watch), Hewlett Packard (servers), Dell (desktops & servers), Amazon (Kindle), and Sony (televisions). Quanta Computer manufactures Apple notebooks, Flextronics manufactures Microsofts Xbox, and Compal Electronics manufactures Dell laptops. Nike’s footwear is produced by hundreds of independent contract manufacturers in 14 countries, and Gap clothing (Gap, Banana Republic, Old Navy) is produced by hundreds of independent contract manufacturers in 29 countries. Taiwan Semiconductor manufactures chips for Apple, Qualcomm, AMD, and Nvidia.
China has shown that ” Industrial Policy” is good for cleaning a clock with. There is something to be learned from that.
One might also note that it is our own Upper Class Occupation Government which used Chinese Industrial Policy to clean Lower Class Majority America’s clock with. On purpose with malice aforethought.
The only way we could have an industrial recovery policy here is if we totally defect from all aspects of the Free Trade System and Free Trade Order. Can we do that without having a revolution to round up and mass slaughter all the thousands or millions of Free Trade supporters who support China cleaning America’s clock? If someone thinks we can, I hope they form a political party-movement to advance that goal, all nice and peaceful-like.
https://www.vanityfair.com/news/2020/01/after-trump-china-deal-the-case-for-a-chexit
In the 1990s, everyone seemed to be a free trader, and dissenters like Ross Perot and Pat Buchanan drew scorn from respectable circles. The only question was whether the United States would seize on the opportunity to get in on the markets of developing countries as they made their way toward South Korean levels of prosperity.
As Bill Clinton would say in 2000, when pushing for a bill that would grant China “permanent normal trade relations,” or PNTR, if we missed this opportunity, it would “cost America jobs as our competitors in Europe, Asia, and elsewhere capture Chinese markets that we otherwise would have served.” As for human rights, “We can work to pull China in the right direction or we can turn our backs and almost certainly push it in the wrong direction.”
It would also be good for American workers, because “we’ll be able to export products without exporting jobs.” At a time when the U.S. economy had been growing at an exceptional pace, with dotcom start-ups blanketing the landscape, this all seemed plausible. China could grow wealthier manufacturing tube socks, while the United States could explore the frontiers of innovation.
But people and history have a nasty habit of disrupting our theories about them. China wanted to make more than socks, and, even when it was making products of that sort, it was burying the competition.
I began to get the inkling that a Chinese factory wasn’t just a U.S. factory with lower pay when, in the early 2000s, I had to visit a lot of production facilities around the world. My job was to check on labor conditions in these places and report back to American companies that had placed orders with them.
I was going to lots of countries—Mexico, Belgium, Thailand, Syria, Italy, Tunisia, to name just some—but China dominated the action. After gaining permanent normal trade relations with the United States in 2000 and accession to the World Trade Organization in 2001, the People’s Republic was seeing a rush of U.S. investment.
The factories in China were harsh. Many employed thousands of workers, most of them young women from the countryside, who worked in demanding production lines and had unsmiling, frightened expressions.
In places that used varnishes or glues, ventilation was often scant. Among piece-rate metal workers, protective gear, if any was provided, often got tossed aside as an impediment to productivity.
Employees ate from the company kitchen, paying for the board, and slept in company dormitories, paying for the lodging. A typical room might house 12 people in six bunk beds on a concrete floor.
Most workers would put up a curtain in their individual bunks, to have a little privacy. Bathing would be done with towels and handheld basins of cold water. Sunday was a day of rest, except at crunch time, when workers were on call all days of the week.
Typical shifts ran between 12 and 15 hours. They earned a few dollars a day. No U.S. factory could compete with this. A steady trickle of blue-collar job loss in the United States became a flood.
Today, we can see that few of the consensus prophecies about trading with China proved to be true. By 2005, our trade deficit with China had doubled since Bill Clinton made his speech.
By 2014, it had quadrupled. By 2018, it had increased five-fold, exceeding $400 billion, and China has developed a reputation for vices like currency manipulation and economic espionage.
By that time, Xi Jinping was cementing himself in power and overseeing an intensity of surveillance over Chinese citizens that made the early 2000s look like a golden interregnum of liberty by comparison.
Meanwhile, in the United States, the damage was done. Manufacturing jobs went into steep decline after 2001, and over 5 million were lost to the new global marketplace.
As Jordan Weissmann explained in a fine 2016 Slate article, “the shockingly fast collapse of the early 2000s simply convulsed blue-collar communities.”
Wrongheaded theory can explain some of why we did this to ourselves, but not all of it. Yes, we thought our access to Chinese markets would outweigh any price paid by giving China access to American markets.
But we still had to know that kicking down the barriers overnight would cause extreme dislocation to countless Americans. Why we did it that way, rather than allowing for a less disruptive phase-in that would buy people time to adapt to the change, is something few people seem to ask.
Many blue-collar Americans experienced their own version of the so-called shock therapy visited upon Russia in the 1990s, when millions of ordinary Russians suddenly found themselves without work, money, or hope.
But few of our leading voices noticed. Meanwhile, China has been notably eager to prevent abrupt economic destabilization on its own turf, however swift its pace of change has been.
You could even argue that its economic gradualism over the past 40 years would have been a good example to follow. But we thought of ourselves as the teachers.
In finance, wealth and glory can accrue to those who are vindicated by their prophecies, like Michael Burry in “the Big Short.” In politics, not so much. If Washington has any lesson for those of high ambition, it’s that being right and on your own is far worse for your career than being wrong and part of a crowd.
Twenty years ago, the Congressional Progressive Caucus, chaired by Dennis Kucinich, warned that granting China regularized status would make its low wages and unsafe factories a plus to investors rather than a minus, with consequences including a larger trade deficit, “loss of U.S. jobs, and lower average wages in the U.S.” Such predictions attracted derision at the time and are forgotten today. Meanwhile, the voices of authority retain their authority.
Back in 2000, experts from places like the Peterson Institute for International Economics could dismiss predictions of large trade deficits as “an absurd extrapolation” and carry the day.
Today, a new crop of experts from the Peterson Institute for International Economics can go to Davos and call the latest trade deal with China a disaster, confident of a warm reception.
Clinton was lying. The mass jobicide of American manufacturing was the result he sought deliberately on purpose all along right from the start. It is part of what he was expecting to be paid so well for after leaving office.
“Everyone” was a Free Trader? No. The House Democrats and their constituents who voted against NAFTA (for example) were Forcey Free-Trade opponents that whole time. The IFTC elites who owned major media and etc. tried trick-weaving the image that ” everyone” was a Free Trader.
The conditions you saw in China were the deliberate object and the whole point of MFN for China. The whole point was always to work the different costs-and-conditions arbitrage rackets against America from export-aggression platforms in China. Many non-traitors pointed this out at the time. Senator Harkin was one of those non-traitors in his run against the traitor Clinton while discussing an earlier iteration of this International Free Trade Conspiracy policy . . . NAFTA. That’s why I voted for Harkin in the primary. Because I understood the nature of Clinton’s economic treason.
agreed. we need a percura report or a nuremburg war crimes trail to expose what the clinton white house, his advisers inside and out side of government, and the ones who financed him.
same be said of the congressman who rubber stamped all of bill clintons free trade, deregulation, privatization and massive tax breaks for the rich.
its the only way out of this, because people are now so radicalized, that the next trump maybe the real deal.
when bill clinton said working americans better learn Mandarine, he meant it: this was treason, How Bill Clinton and American Financiers Armed China: Bill Clinton administration helped create the Chinese missile threat we are now confronting
its just to big to hide today, this was treason, How Bill Clinton and American Financiers Armed China: Bill Clinton administration helped create the Chinese missile threat we are now confronting
what was done to the american people and our wealth and security, is now spreading like wildfire: How Bill Clinton Made the Worst Strategic Decisions in American History.
it is now spreading like wildfire that bill clintons destruction of democratic control over trade, has destroyed americas capabilities for security, and wealth creation.
thanks to bill clinton, our defense companies are all but owned by the chinese communist party, and its why Boeing can no longer make airplanes that can fly, this treason was also accelerated by obama.
https://mattstoller.substack.com/p/how-bill-clinton-and-american-financiers
How Bill Clinton and American Financiers Armed China
Oct 1
Public post
I recall that bill clinton pushed through NAFTA… but it was already being put together by George HW Bush… This was completely a bipartisan doing… and hell..
nixon sent george HW bush to china in 1972? 1974? as US ambassador… he helped “open up” china…with kissinger and nixon… George HW Bush’s brother jonathan, created the us-china chamber of commerce… and other ties in the eighties… even getting flak for going to big meeting days after tieneman square.
the bush kids…. including neil , who in a divorce fight with his wife,had his wife chasing billions in hidden wealth from niel bush held under front companies in china/hong kong .she claimed niel had 5.5 billion in hidden assets….. I wonder what the others had?
This is by no means a clinton thing, or a bush thing…. this is an assault on american labor by wall street, after all bill clinton was a koch funded democrat…
and when nafta was being passed, the marketing division was telling the fairytales of it being good for people.. but the realists knew what was going on was the lifting of the east,and the west would have to give…. and it is still giving… and wall street has been getting their cake and eating it too… every day….
and we get blowback, like dysfunction,animosity,and trump…
And biden was the senator from MBNA and a dupont crony.. and totally on board with “the plan”… and he has been rewarded/// and his sons, and chelsea clinton, and the babier bushes//// all get the perks.. of lifetime money and jobs to pretend they are employed.
Free Tradism was not BiPartisan till the New Yuppie Scumocrats as exemplified by Clinton made it that way.
The ReaganAdmin and the BushAdmin co-conspired with the MexiGov and the CanadaGov to get NAFTA fully designed and engineered. But a DemParty majority House kept voting it and things like it down.
It was Clinton who orchestrated the effort to bribe and extort and threaten just enough bribable, extortable, threatenable DemParty House members to get NAFTA passed and then get other Forcey Free-Trade laws and agreements passed. Just as ” only Nixon could go to China”, only a Democrat could “go to China” on Free Trade. So this is strictly due to the New Yuppie Scum Clintocrats.
There was a book written about that.
https://www.ucpress.edu/book/9780520231788/the-selling-of-free-trade#:~:text=The%20Selling%20of%20%22Free%20Trade%22%20shows%20how%20Washington,law%20creating%20the%20North%20American%20Free%20Trade%20Agreement.
Clinton’s achievement. Clinton’s fault.
agreed, billy clinton broke it , he owns it. it took a democrat to get the republican agenda through.
bill clinton drove out people like dennis kucinich and other real progressives.
and the clintonites are doing everything possible to keep them out.
the democrats are no longer the party of FDR/TRUMAN, they are the party of the koch brothers.
we need a truth commission before to many are radicalized.
hudson is correct, the democratic party must be destroyed. but a good way to do it is name names to the policies, shine the light on the whole dang bunch.
we can never recover till bill clintons disastrous policies have been reversed.
brad delong called it complete economic nonsense.
Just a reminder about the successful Japanese industrial policy, which was discussed some time ago on NC: http://www.paecon.net/PAEReview/issue23/Locke23.htm
It would also be interesting to know more about South Korea’s industrial policy…
Thanks for this oldie but goodie. BTW, if funny lookin’ characters appear in your browser, switch text encoding on that window to “Western (ISO Latin 1)” and it’s all good. :)
P.S. A more recent (2016) discussion of Locke’s argument about Japan:
https://www.reddit.com/r/slatestarcodex/comments/4f79hm/japan_refutation_of_neoliberalism_by_robert_locke/
All this discussion of Industrial Policy, and no discussion that Regan and Thatched embraced Neo-Libralism to crush the unions.
“All this discussion of Industrial Policy, and no discussion that Regan and Thatched embraced Neo-Liberalism to crush the unions.”
Neoliberalism is sociopathology in action whilst masquerading as freedom!
“Of 76 economic advisers on Ronald Reagan’s 1980 campaign staff, 22 were MPS members.”
https://en.wikipedia.org/wiki/Mont_Pelerin_Society
you need to look at the numbers. i am not carrying any water for reagan or thatcher. but the real union buster was bill clinton.
https://www.theguardian.com/commentisfree/2016/nov/10/democrats-working-class-americans-us-election?fbclid=IwAR3WEBeYKwhq_TKjjaNR-80DAgNdyOoTnMsWMwyOKJbQhBsUfusI8NOLogs
Both Bill Clinton and Barack Obama ardently pushed for free trade agreements without providing millions of blue-collar workers who thereby lost their jobs means of getting new ones that paid at least as well.
They stood by as corporations hammered trade unions, the backbone of the white working class – failing to reform labor laws to impose meaningful penalties on companies that violate them, or help workers form unions with simple up-or-down votes.
Partly as a result, union membership sank from 22% of all workers when Bill Clinton was elected president to less than 12% today, and the working class lost bargaining leverage to get a share of the economy’s gains.
Bill Clinton and Obama also allowed antitrust enforcement to ossify – with the result that large corporations have grown far larger, and major industries more concentrated.
The unsurprising result of this combination – more trade, declining unionization and more industry concentration – has been to shift political and economic power to big corporations and the wealthy, and to shaft the working class. This created an opening for Donald Trump’s authoritarian demagoguery, and his presidency.
Now Americans have rebelled by supporting someone who wants to fortify America against foreigners as well as foreign-made goods. The power structure understandably fears that Trump’s isolationism will stymie economic growth.
But most Americans couldn’t care less about growth because for years they have received few of its benefits, while suffering most of its burdens in the forms of lost jobs and lower wages.
The US was hoping an entrepreneur would develop 5G in their basement, but it didn’t happen.
The Chinese decided to take the lead in technology and set about the task.
Don’t you just hate central planning?
I hate the way it delivers results.
Boo hiss …..
Eventually they had to bite the bullet and accept the evidence in front of them.
5G is a bit hard, there are lots of easier ways to make money.
I’m looking for a cushy number transferring existing financial assets around.
It’s so easy, everyone’s doing it.
5G is a bit hard, there are lots of easier ways to make money.
I’m looking for a cushy number transferring existing financial assets around.
It’s so easy, everyone’s doing it.
I have a double click problem with my mouse.
Hence duplicate comments above.
New mouse arriving today from Jeff Bezos.
Amazon shopper = whip cracking sadist
I too had a mouse problem this week, frozen, then erratic non controlled movements, then frozen. I got a used one from my local “computer” store that I have been a customer of for over a decade. It works. No new crapola bought, no packaging thrown away,
What failed was a piece of chip.
One small adjustment we could make would be to reduce the time needed to get a Ph.D. from (typically) five years to two or three years, like it was long ago. A professor of aeronautics told me that it is now very difficult to attract grad students because it means starting their careers at the big companies five years later, and they never catch up in seniority.
And as for English majors, How many literature grad students does it take to change a light bulb? – Just one, but it takes nine years.
Why is labour so expensive in the West?
Neoclassical economics and the missing equation
Disposable income = wages – (taxes + the cost of living)
Someone from the CBI (Confederation of British Industry) has just seen the equation.
Disposable income = wages – (taxes + the cost of living)
Two seconds later …..
They realise the UK’s high housing costs push up wages and are actually paid by the UK’s employers reducing profit.
Employees do get their money from wages, so employers are actually paying through wages.
The West’s high cost of living makes it expensive to get anything done in the West.
To maximise profit you should off-shore.
The Chinese don’t have the equation either.
Davos 2019 – The Chinese have now realised high housing costs eat into consumer spending and they wanted to increase internal consumption.
https://www.youtube.com/watch?v=MNBcIFu-_V0
They let real estate rip and have now realised why that wasn’t a good idea.
The equation makes it so easy.
Disposable income = wages – (taxes + the cost of living)
The cost of living term goes up with increased housing costs.
The disposable income term goes down.
They didn’t have the equation, they used neoclassical economics.
The Chinese had to learn the hard way and it took years, but they got there in the end.
I have worked in a manufacturing environment almost all of my career. I design, build, program and maintain the automation used in the factories. I have watched the out sourcing of America’s industry for over twenty years. It has been fairly obvious what the results would be – the complete hollowing out of America’s capacity to make the things we need and provide the goods jobs that enable a middle class life for the majority of Americans.
Let me speak to a couple of myths –
Although automation will reshuffle the worker mix, and may replace workers, it generally results in other required jobs, i.e. we have actually NOT installed automation in many instances because we could not get the high skilled, high paid technicians required to keep it running.
Labor costs are generally a small part of the total cost of the product in the industry I am in – say maybe 5% to 10% of the total cost at most so outsourcing generally means you are going to loose some highly skilled employees in America, and start getting flaky parts that need to be fixed from a low cost supplier.
What I have noticed with alarm, and it is almost never commented on in any forum is that the skill and knowledge of the American middle and upper level management (or as we call them – the PMC) seems to be diminishing at an alarming rate (it could just be the company I’m at – I hope that is the case.) Cutting skilled labor or out sourcing has always been what I characterize as a “non-thinking” management policy to reduce manufacturing costs. It’s a policy that can be figured out by a sixth graders, not supposedly MBA wielding management “experts”. They instead have become experts at maneuvering in increasingly sociopathic corporate culture, and figuring out how to make quarterly cost cutting so they can get promoted and move on before the reality of the cost cutting leaves the factory in a shambles.
So yes, we need industrial policy because almost all the decisions being made at the top in America’s largest firms is how to quickly extract the maximum personal profit. They really don’t care if they have a smoking hole in the ground where a once great factory stood, they are there to get rich and that’s about the totality of it.
Read Glass House by Brian Alexander.
The US has got confused between making money and creating wealth and this leads to all sorts of problems.
Rentiers make money, they don’t create wealth.
Everyone had expected economic liberalism to unleash capitalist dynamism.
Instead there was a stampede towards the easy money of “unearned” income.
In 1984, for the first time in American history, “unearned” income exceeded “earned” income.
The rentiers have never had it so good.
What we are seeing is wealth extraction in preference to wealth creation.
Banks create money, not wealth, and so lie at the epicentre of the confusion.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
You haven’t got a clue what’s really going on.
You don’t actually know what real wealth creation is, and anything that causes the economy to grow is seen as good, even the money creation of unproductive bank lending.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
It’s always been the same.
Neoclassical economics is the economics of the Roaring Twenties, the Wall Street Crash and the Great Depression.
Sooner or later policymakers go for the economic growth model of the US in the 1920s, which always end in disaster.
The “Roaring Twenties” phase does feel good and no one has got the faintest idea where this is leading.
Existing financial assets, e.g. real estate, stocks and other financial assets, are traded and bank credit is used to fund the transfers.
The money creation of bank credit inflates the price.
You end up with a ponzi scheme of inflated asset prices that will collapse and feed back into the financial system.
The money creation of bank credit makes the economy boom, but there is little real wealth creation taking place so debt rises faster than GDP.
1929 and 2008 stick out like sore thumbs.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
At 18 mins.
When banks lend for productive purposes debt grows with GDP, like the UK before 1980.
The UK eliminated corset controls on banking in 1979, the banks invaded the mortgage market and this is where the problem starts.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
The transfer of existing assets, like real estate, doesn’t add to GDP, so debt rises faster than GDP until you get a financial crisis.
What is wealth creation?
Isn’t it rising asset prices?
Everyone always thinks that with neoclassical economics.
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth.
1929 – Wakey, wakey time
The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth, but it didn’t.
It didn’t then, and it doesn’t now.
It took them a long time to disentangle the hopelessly confused thinking of neoclassical economics in the 1930s.
This is the second time around and it has already been done.
The real wealth creation in the economy is measured by GDP.
Real wealth creation involves real work, producing new goods and services in the economy.
That’s where the real wealth in the economy lies.
All human societies basically have the same function.
To produce the goods and services that society needs.
GDP measures the economic activity in the economy; the new goods and services produced and sold every year.
This is the real wealth in the economy and this is what we want to grow.
Producing excess supply is pointless, and this is why GDP measures the goods and services produced and sold every year.
China found out the hard way with their empty cities.
What was the point in building empty cities?
Money comes out of nothing.
States can create money out of nothing.
Private banks create money out of nothing.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
Real wealth doesn’t lie here, ask Weimar Germany and Zimbabwe.
You need the right amount of money in the economy for the goods and services that economy produces.
Money has no intrinsic value.
Its value comes from what it can buy.
Too much money all you’ll get hyperinflation.
You’ll need wheelbarrows of the stuff to buy anything.